AUD/USD slides below 0.6900 as investors now expect a 75 bps US Fed rate hike

• The AUD/USD fell 0.54% on Tuesday, ahead of the US Fed meeting.
• Sentiment and US Federal Reserve expectations of a bigger than foreseen rate hike weighed on the AUD/USD.
• AUD/USD Price Analysis: Might re-test 0.6900 before challenging the YTD low at 0.6828.

The Australian dollar plunges to fresh four-week lows after news that the Federal Reserve would hike 75 bps in the June meeting, the largest since 1994, as US inflation hit 8.6%, showing signs of not abating in the near term. After reaching a daily high near 0.6970, the Aussie dollar collapsed and trades at 0.6894 at the time of writing.

AUD/USD falls on US Federal Reserve 75 bps hike expectations and negative sentiment

The AUD/USD fell on the back of a WSJ news piece that said that “a string of troubling inflation reports in recent days is likely to lead Federal Reserve officials to consider surprising markets with a larger-than-expected 0.75-percentage-point interest rate.” The sentiment was already sour on Monday and carried on to Tuesday’s session, weighing on the AUD/USD, which has plummeted close to 3% in the first two days of the week.

Also, US data released on Tuesday saw the May prices paid by producers in the US rose by 0.8% MoM, aligned with expectations. On an annual basis, the figure downtick to 10.8%, from 10.9% estimations. The AUD/USD approached the 0.6900 figure on the PPI news but dipped towards 0.6880s before extending its losses to a new daily low at 0.6876.

Of late, the US IBD/TIPP Economism optimism for June dropped to 38.1 from 41.2 in May. Raghavan Mayur, president of TechnoMetrica, who directed the poll, wrote, “The June numbers are quite bleak. Most Americans (53%) feel we are now in a recession, and two-thirds (67%) feel the economy is not improving.”

Mayur added that “A full 90% are worried about inflation. Pain is particularly acute at the pump. Gasoline prices have taken over as the top economic issue for 59% of respondents, up from 47% last month. With more Americans cutting back on spending and the Personal Financial Outlook component hitting a record low, people are scared about what the coming months will hold.”

During the Asian session, the Australian NAB’s May business survey showed that business confidence and conditions fell, though they remained elevated compared to the trend. The report showed that total and retail prices continued in solid form, suggesting that upward pressure would keep mounting.

The Australian economic calendar will feature at around 12:30 GMT the Westpac Consumer Confidence for June. On the US front, May’s Retail Sales, alongside Imports and Exports Prices, would shed some light on the US economic outlook. Later at around 18:00 GMT, the Federal Reserve will reveal its monetary policy decision.

AUD/USD Price Analysis: Technical outlook

The AUD/USD is downward biased, reinforced by the break below the June 2 low at 0.7140, extending the pair losses towards the 0.7030s area. Nevertheless, on Monday, the major collapsed in tandem with most G8 currencies vs. the greenback on Federal Reserve news.

Therefore, the AUD/USD might re-test the 0.6900 before resuming the uptrend. Then the AUD/USD first support would be the May 16 low at 0.6872. A breach of the latter would expose the May 13 daily low at 0.6853, followed by the YTD low at 0.6828.